Sunday, June 16, 2024

Government COVID restrictions on employment decisions make no sense

Since the introduction of COVID 19 restrictions, including the hard lockdown that we had to endure at the beginning of April 2021, it is self-evident that the economy has taken a huge battering. Our GDP is estimated to have contracted by approximately 8% in 2020 with the key sectors of tourism and mining bearing the brunt of lockdowns. Mining suffered from weak global demand, while restrictions on movement hurt tourism. Other key sectors such as transport, construction and manufacturing were also hit hard. 

Hotel stays for example, have plummeted and the tourism sector has all but collapsed.  In fact I was at one of the nation’s capital city’s swanky hotels this past week and the place was sleepy at a time when it would ordinarily be teeming with month end patrons.

Before the introduction of the lockdown, year on year GDP for the March 2020 quarter was growing positively at 2.7%. Enter the corona virus and consequent restrictions.  For the quarter ending June 2020, GDP had contacted by 24% on a year on year basis. The September quarter also experienced a further 6% fall. So we are in the eye of a storm.

Weak diamond also translated into a decreased import cover of only 10.9 months because mining contributes immensely to foreign exchange reserves and earnings. It therefore goes without saying that any deterioration in exports compared to imports erodes foreign exchange reserves. This decline has been in motion for a quite some time now and was exacerbated by the pandemic in 2020.  In 2015 for example, foreign exchange reserves represented a high of nineteen months of import cover.  Since then the cover the cover has been shrinking almost every year and this spells doom for the country because it means we are not exporting enough to earn foreign exchange to buy foreign goods including essentials such as food and medicines. 

So I bring out these facts to show that the economic harm caused by COVID 19 restrictions is palpable.  That being the case you would expect the government to take this into account and allow business to consolidate in order to stand a fighting chance of survival and save jobs. But regrettably, that has not been the case.  Instead businesses have been hit with anti-business rhetoric from the government reflecting a not so useful long tradition of not seeing business as a force for good. 

Since April last year, the government prescribed that during the state of emergency, employers could not retrench employees as part of their restructuring plans.  For firms whose operations have not been affected by the restrictions, I guess such a requirement many not be such a big deal. However given that the end of pandemic induced restrictions remains unknown, this requirement is not tenable. Moreover, employers who could no longer keep their doors open have sent employees home anyway because they could not provide work due to circumstances beyond their control. 

If you are running a hotel for example and have no guests, the only logical option you have is to close doors.  This may of course not be so obvious to government because the manner in which the state operates is such that it is sustained by tax and has no imperative collusion to provide a service to continue to exist.  So other than currying favour with trade unions, it is not clear what else has been achieved by the prohibition of retrenchments as a restructuring tool.

Even under COVID, it is crucial that markets including the labour are allowed to work with minimal intervention by the state regarding company operations and restructuring plans. That way, a conducive environment for investment and job creation is created.     


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